The OECD reported on 18 March 2021 that following the implementation of initiatives in mining tax audit capacity building the Mongolian Tax Administration issued its first assessment related to transfer pricing in late 2020.
The Mongolian Tax Administration and Ministry of Finance have been making efforts to ensure that the tax rules and procedures are in line with international best practices. Mongolia has participated in the OECD’s Project on base erosion and profit shifting (BEPS) and in the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes, A number of international taxation provisions have been introduced to implement BEPS recommendations.
Mongolia has for some years received technical assistance from international organisations such as the IMF and the Word Bank Group, and in recent years Mongolia has partnered with the OECD, Intergovernmental Forum on Mining, Minerals, Metals, and Sustainable Development (IGF), and the OECD/UNDP Tax Inspectors Without Borders (TIWB) programme. TIWB aims to give support to developing countries in building up their tax audit capacity by directly supporting tax inspectors in their work on international taxation.
Through the TIWB initiative local tax inspectors receive support with risk assessment; case selection; investigatory techniques; transfer pricing audits; and issues related to particular industrial sectors. During the pandemic the TIWB specialists have continued their work by providing virtual advice and support.
Recently the OECD and IGF have been working with the Mongolian Tax Administration to strengthen the collection of tax revenue from the extractive industries. The extractives sector was the source of more than 80% of Mongolia’s exports in 2019 and supplied 24% of tax revenues. The BEPS in Mining Programme provides technical support and tax capacity building to resource-rich developing countries and is a joint initiative of the OECD and IGF. By addressing the causes of base erosion and profit shifting in the extractive sector the BEPS in Mining Programme opens the way for developing countries to obtain the correct amount of tax due on the profits from their natural resources.
New Mongolian transfer pricing rules took effect from 1 January 2020, replacing separate rules located in various different tax laws. The transfer pricing rules can apply to domestic and cross-border transactions and the scope of the rules incudes local branches of foreign companies.
In late 2020 with the support of these initiatives the Mongolian Tax Administration issued its first transfer pricing tax assessment. The tax issues are currently in dispute but the issuance of the assessment is evidence of the progress made by Mongolia in implementation of initiatives in line with the BEPS recommendations and their application in the mining sector.